Profits at Wall Street’s major banks tank on weak trading, dealmaking

Morgan Stanley’s earnings tanked 13% as trading and dealmaking dried up — the latest signal that Wall Street is still struggling to dig itself out of a post-pandemic funk.

The New York-based financial giant headed by CEO James Gorman reported a second-quarter profit of $2.2 billion on Tuesday — short of of the $2.5 billion reported for the same period a year ago.

While trading revenue tumbled 22% from a year ago, revenue from investment banking, including fees from mergers and acquisitions, remained unchanged from a year ago, at about $1.08 billion, the report showed.

Morgan Stanley blamed its profit shortfall on $308 million in severance costs it paid out to more than 3,000 employees that were handed pink slips throughout the quarter.

Morgan Stanley has slashed its workforce by 3.6% so far this year as a tough economic environment has made for slower dealmaking.

Its $1.24-per-share in earnings, however, were above the $1.15-per-share analysts expected.

Revenue also beat estimates, increasing 2% to $13.5 billion.

“The firm delivered solid results in a challenging market environment,” Gorman — who took over the firm in 2010 and will step down within a year — said in the earnings release after the period started with uncertainty over the banking crisis, geopolitical tension and the path of US interest rates.

The wealth management unit’s net revenue rose 16% to a record $6.7 billion for the quarter, and it gained almost $90 billion in new assets.

In the wake of the better-than-expected report, Morgan Stanley’s stock price surged nearly 6% as of Tuesday afternoon.

All eyes are now on Goldman Sachs, which will release its second-quarter earnings on Wednesday morning.

Analysts are predicting that the David Solomon-run investment bank will report a staggering 49% year-over-year dip in earnings per share to $3.94 per share.

The hefty drop comes after Goldman executives have actively downplayed earnings results following a 25% slowdown in trading revenue and a round of layoffs that affected 250 employees at every level, including 125 managing directors.

According to estimates by foreign exchange marketplace Forex, Goldman Sachs’ net revenue is also forecast to fall 11.8% from 2022, to $10.5 billion.

Three other Wall Street banking giants — Bank of America, JPMorgan Chase and Citigroup — beat analysts’ expectations when they released their Q2 earnings reports on Tuesday showing capital markets are trending more positively as investment banking remains in a slump.

With the exception of Citigroup, all firms reported better earnings in Q2 of 2023 than they did in 2022.

The fresh earnings added 300 points to the Dow Jones Industrial Average, putting it on pace for a 52-week closing high.

The S&P 500, which closed Monday at its highest level since April 2022, also edged nearly 1% higher, as did the Nasdaq.

BofA’s profit rose 19% to $7.41 billion, or 88 cents per share, according to its report released Tuesday, which was up from the $6.25 billion, or 73 center per share, reported in the same period a year earlier.

The bank’s revenue for the second quarter climbed 11% to $25.33 billion.

Both profit and revenue figures edged out analysts’ estimates of 84 cents per share and $25.05 billion, respectively.

JPMorgan, America’s largest bank in terms of total assets and market cap, saw revenue jump 34% in the second quarter to $42.4 billion — well above the $38.96 billion analysts expected.

Net income also saw a hefty surge, increasing 67% to $14.5 billion, or $4.75 per share.

The Wall Street major bank’s boss, Jamie Dimon, also used the earnings report as an opportunity to “welcome our new First Republic employees” following JPMorgan’s acquisition of the ill-fated bank in May.

Citigroup on Friday also posted better-than-expected earnings and profit, though revenue fell 1% from a year ago to $19.44 billion.

Income toppled 36% year-over-year from $4.5 billion to 2.9 billion, or $1.33 per share.

Citi CEO Jane Fraser attributed the losses to “the long-awaited rebound in investment banking (that) has yet to materialize, making for a disappointing quarter.”